MENU

Is Singapore’s Share Market Cheap or Expensive Now?

At the start of each month, I have a habit of taking a look at how cheap Singapore’s market is. That’s because doing so can give me meaningful insight into how I can approach my search for investing opportunities.

With September having just ended yesterday, let’s get right into the meat of things.

The Straits Times Index (SGX: ^STI) closed at 3,277 points yesterday. According to data from the SPDR STI ETF (SGX: ES3), an index tracker which closely mimics the fundamentals of the STI, Singapore’s share market barometer carries a trailing price earnings (PE) ratio of around 14. For some context, the long-term average PE ratio for the STI from 1993 to 2012 had been around 17. So, from that vantage point, the market can hardly be described as expensive, though it’s certainly nowhere near being dirt-cheap either.

But given that the STI is only made up of 30 shares and that there are more than 750 listed entities in Singapore’s share market, the index might not be a totally accurate reflection of the state of cheapness (or lack thereof) of the broader market.

Thus, there’s another measure, which I favour, to look at how expensive the market is – and that’s through the number of net-net shares that exist currently. A net-net share is one which has a market capitalisation smaller than its net current asset value (total current assets minus total liabilities). Investors buying such shares are basically getting a discount on current assets (like cash, receivables, and inventories) net of all obligations. And to top it off, fixed assets like real estate and factory equipment are thrown in the mix for free.

I trust that it’s obvious to see how net-net shares can be potentially great bargains and it thus follows that the market would be really cheap if such shares start appearing in great quantities. The chart below shows where we are today:

NCAV Bargain September 2014

Source: S&P Capital IQ

As you can see, we have 101 net-net shares as of 30 September 2014. That’s nowhere near what we saw during the depths of the Great Financial Crisis of 2007-09 (191 net-net shares!), so true-blue bargain hunters might be a little disappointed.

But, it’s also worth pointing out that Singapore’s market is nowhere near as expensive as it was just prior to the crisis in the second half of 2007. All told, Singapore’s market seems to be in some sort of Goldilocks temperature – not too hot, and not too cold.

How cheap or expensive Singapore's share market is can be an important piece of news for you as an investor. But it's also not the only interesting and important development about our local market you should know about. To keep up to date with what's exactly happening in today's market, click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore can also show how you can GROW your wealth in the years ahead.

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.